Get Ready for Some Serious Sticker Shock as Inflation Heats Up

May 18, 2020

By Money Metals News Service

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

Gold and silver markets are inching closer to achieving major upside breakouts.

On Thursday, gold rallied above a near-term consolidation pattern to close at $1,747 an ounce. That put the monetary metal about $30 away from making new highs for the year. As of this Friday recording, gold prices are marching higher again and come in at $1,761, up 2.5% for the week.

Turning to silver, the white metal gained nearly 3% yesterday to touch a major resistance line just above the $16 per ounce level and the momentum is carrying over into today. A strong weekly close above yesterday’s high could trigger a wave of technical buying that propels prices much higher in the days ahead – and it looks as though such a close is in fact going to happen.

The silver price currently trades at $16.70 after advancing nearly 4% so far today and is now up a healthy 6.7% for the week or just over a $1 an ounce since last Friday’s close.

As for the platinum group metals, they are showing mixed results. Platinum was lagging a bit but is now starting to join the party. The industrial metal is now showing a weekly advance of 2.4% to trade at $797. Meanwhile, palladium is still lagging and shows a weekly decline of 1.4% to bring spot prices to $1,943 per ounce.

Supplies of physical bullion products continue to be tight across most forms and sizes. Although market conditions are less frenzied than they were a few weeks ago, premiums do remain somewhat elevated, especially on a product like Silver Eagles.

Risks remain that shortages and price spikes could emerge in the tenuous supply chain for common gold and silver coins and rounds.

Normally, the bullion market is liquid, efficient, and well supplied. But these aren’t normal times.

Mines and mints can shut down at a moment’s notice over virus fears. And safe-haven demand can spike suddenly in response to financial turmoil.

Global supply chains are being stressed to the point of breaking when it comes to the delivery of essential economic goods including food. In recent weeks, prices consumers pay at the grocery store have skyrocketed – especially for meats, dairy products, and eggs.

Here’s how NBC News and France 24 reported on the situation:

NBC Report: These days, many families across the country are experiencing serious sticker shock at the grocery store. When stay at home orders went into effect in March, supermarket sales shot up 83% and apparently food prices climbed too. An across the board bump that’s actually setting records. The last time food prices jumped this much from one month to the next was way back in 1974, almost a half century ago. Federal figures reveal at least a one and a half percent price increase in all food groups in April, with meats, poultry, fish, and eggs leading the way, the cost of eggs alone skyrocketed 16%.

France 24 Report: When meat giant Tyson Foods placed full page ads in various U.S. newspapers, six words stood out most, the food supply chain is breaking.

On Thursday, President Donald Trump suggested the United States might move to cut economic ties with China and re-center manufacturing supply chains closer to home. The coronavirus outbreak certainly exposed the dangers of depending on Chinese factories for critical hospital equipment and life-saving prescription drugs.

On the other hand, outsourcing to China and other countries that can produce things very cheaply has helped keep a lid on consumer prices. Most of the products that fill Walmart, for instance, shelves would cost a lot more if they were all made in the USA. Our labor costs are much higher and so are our environmental standards.

China willingly absorbs hundreds of billions of our excess fiat dollars every year in exchange for real goods. It will be difficult for Americans to give up that relationship even if it is ultimately a toxic one.

China may also be questioning the prudence of acquiring and holding ever more U.S. Federal Reserve notes. The Quantitative Easing campaign now underway is unprecedented in scale. And more stimulus schemes are being devised every day.

Congress is pushing forward a new $3 trillion stimulus bill and another round of $1,200 stimulus checks. So where will the money come from one might ask? Well, it will simply be created out of thin air and added to an already ballooning national debt.

All this currency creation will do nothing to stimulate an economy that is being intentionally locked down. It will perhaps help some of the millions of people who are out of work with no savings get by for another month. But it will also exacerbate the problem of food inflation at grocery stores.

Even as many businesses fail, price inflation can also be expected to show up at restaurants, shops, theaters, airlines, and other businesses that are slowly being allowed to operate under “social distancing” guidelines.

Some politicians and journalists have even expressed outrage over scenes of crowded planes and newly reopened bars and restaurants that aren’t practicing social distancing.

It’s easy to demand that airlines not fill middle seats or that diners spread out their tables and serve fewer customers. But businesses that had already operated with low margins and heavy fixed costs for floorspace are only viable if they can fill that space with paying customers on a regular basis… or else charge a lot more per customer than before.

That’s why going out to eat or flying on a plane in a post-COVID world could become a lot more expensive. And it will be a luxury that many people simply choose to forgo.

More fake stimulus from Washington will only help enable and exacerbate consumer price hikes. It will also add more fuel to the fire being lit under precious metals markets.

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